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Recent Articles
Do You Need A Living Trust?
Joseph G. Maniaci, Esquire and Reno John Ciccotta, Esquire
What is a Living Trust? Will it save you or your family money? You cannot pick up a newspaper or magazine or listen to a radio talk show without being exposed to some form of advertisement promoting Revocable Living Trusts as an estate planning tool. Such advertisements generally describe Living Trusts as an indispensable means of designing an estate plan. Be careful: although Living Trusts have their place, they are not all that they are cracked up to be.
Advocates of Living Trusts argue that they are valuable because they will enable an individual's heirs to avoid the "dreaded" probate system. A Living Trust is a legal document that provides professional asset and expense management during your lifetime, in addition to directing the way your assets are distributed upon your death. When you set up a Living Trust, you transfer the title to some or all of your existing assets (real estate, bank accounts, stocks, bonds, etc.) from your personal name to the name of the Living Trust. Usually, you then designate yourself as the Trustee and beneficiary. Because no assets will actually exist in your name at your death, your heirs will be able to avoid the cost and delay allegedly associated with probating a Will and administering a probate estate. However, the Pennsylvania probate process is not overly expensive or burdensome and essentially consists of the filing of a Will at the local Register of Wills office. For the average Pennsylvania estate, the probate filing fee is less than $300.00.
There are many misconceptions about exactly what Living Trusts accomplish. Many people hear that a Living Trust avoids probate and then mistakenly conclude that a Living Trust avoids inheritance tax. It does not. I repeat -- Revocable Living Trusts do not avoid inheritance tax. To the contrary, whether assets pass to your heirs through a Will or through a Living Trust, such assets are subject to Pennsylvania Inheritance Tax, and for Estates that exceed $1,000,000 in total value, the federal estate tax. The Revocable Living Trust itself does not have any tax-eliminating or tax-reducing effect. Additionally, the lifetime income tax consequences for an individual who creates a Living Trust are no different than they were before the creation of such Trust.
Many advocates of Living Trusts also argue that the probate process is too time consuming. However, the primary causes for delay in the administration of a probate estate are usually related to the filing of the inheritance and income tax returns and the sale of real estate. Having a Living Trust will not make the time period for the filing of such tax returns or the sale of such real estate any shorter.
Some Living Trusts advocates argue that such trusts avoid the Executors' fees and attorney's fees associated with probating a Will. For most Estates, this is a very misleading argument. First, most people will name a family member as Executor who has the option to waive all or most of the Executors' fees. Second, inheritance tax returns will have to be prepared and assets will have to be retitled whether you have a Living Trust or Will, both of which may require attorney assistance. In fact, the total attorney's fees for creating and administering a Living Trust could be the same as, or more than, the total fee for administering a probate estate, depending on a variety of factors including the costs of setting up the Living Trust (usually much more than the cost of a Will), the costs of re-titling the assets into the Living Trust, the costs of maintaining Living Trust records, and the cost, time and responsibility involved in administering a Living Trust each year during your lifetime.
This is not to say that there is never a need for Living Trusts. We have prepared Living Trusts for clients who desire or need professional asset and expense management during their lifetimes, particularly those who are dealing with or expect to deal with a physical or mental disability. However, you can appoint a family member or friend as a Power of Attorney who may serve as your legal representative in the case of a disability and manage your assets and expenses for you.
In summary, a Revocable Living Trust does avoid the probate process, but the probate process in Pennsylvania for the average estate is not overly complicated nor costly. Further, and importantly, a Living Trust does not avoid or eliminate inheritance tax. You should talk to a qualified estate planner or attorney to determine the best way to plan your estate.
The Law Offices of Joseph G. Maniaci, 6720 Frankford Avenue, Philadelphia, PA 19135, can answer your questions concerning Living Trusts and any other estate planning matter. You may reach us at 215-332-2626 or 215-332-2627.
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